Don’t Confuse Scale and Growth

It’s so common to hear businesspeople describe “scaling” as a growth process that it’s easy to think “scale” is a synonym for growth itself. While there’s overlap, the two words are not synonyms.

Defining “growth” is easy. Growth is becoming larger. It may be adding thousands or millions to a revenue line, percentage points of a profit margin, or employees measured in the tens or hundreds. There is usually some definable point against which growth is measured, such as year over year or quarter over quarter.

What Scale Means

Scale is quite different, although it generally means getting bigger as well. The Harvard Business Review, for example, defines growth as “adding revenue at the same pace you are adding resources” — well-managed growth, in other words, where there are monies to pay for new people, new offices, new equipment. Scale, the same article says, is “adding revenue at a much greater rate than cost.” In other words, once a company scales its business, the same or incremental costs produce many more sales.

Scale also, as Entrepreneur points out, has connotations of managing process itself toward a specific goal. In a digital business especially, scale implies that technology and its infrastructure needs to be aligned with new goals.

Scaling means that revenues are growing faster than costs, and is often associated with digital and other processes.

If an e-tailer like Amazon wants to serve many more customers, for example, its technological and related processes need to be able to serve them efficiently enough for them to want to be repeat customers. Everything from the ordering process to the warehouses to the returns procedure has to be ready to match the expected level of growth without significant new outlays of cost (or at least not outlays that would affect revenue substantially).

Scaling’s link with technology news and successful business strategy is one of the reasons it’s become a popular corporate byword and has nearly eclipsed “growth” as a word.

Growth, Scaling, and Business Strategies

But another reason is that scaling has become associated with business strategies. Entrepreneur points out that thinking about scaling means thinking about how best to position a business to achieve what the company defines as success.

Suppose a medium-sized company has grown enough to open a second office, for example. The growth might make it compelling. There are enough revenues to support a second office, and salespeople could be located there to be near suppliers.

But the second office may not make sense from a scale standpoint. Will it result in adding revenue at a greater rate than cost? Many new offices add revenue, but not at a much greater rate than cost.

A company evaluating this may want a new office for multiple reasons that have nothing to do with scale. Closeness to suppliers may matter. Visibility in a particular industry, such as media in New York or Los Angeles, may matter. Growth may matter, but not scale.

Don’t confuse the words “growth” and “scale!” They are quite different. Generally, both imply a business is getting bigger, but growth means additional percentage, and scale means that revenues are significantly outpacing costs.